MASTER 
NEGATIVE 

NO.  95-82334- 14 


COPYRIGHT  STATEMENT 


The  copyright  law  of  the  United  States  (Title  1 7,  United  States  Code) 
governs  the  making  of  photocopies  or  other  reproductions  of  copyrighted 
materials  including  foreign  works  under  certain  conditions.  In  addition, 
the  United  States  extends  protection  to  foreign  works  by  means  of 
various  international  conventions,  bilateral  agreements,  and 
proclamations. 

Under  certain  conditions  specified  in  the  law,  libraries  and  archives  are 
authorized  to  furnish  a  photocopy  or  other  reproduction.  One  of  these 
specified  conditions  is  that  the  photocopy  or  reproduction  is  not  to  be 
"used  for  any  purpose  other  than  private  study,  scholarship,  or  research." 
If  a  user  makes  a  request  for,  or  later  uses,  a  photocopy  or  reproduction 
for  purposes  in  excess  of  "fair  use,"  that  user  may  be  liable  for  copyright 
infringement. 

The  Columbia  University  Libraries  reserve  the  right  to  refuse  to  accept  a 
copying  order  if,  in  its  judgement,  fulfillment  of  the  order  would  involve 
violation  of  the  copyright  law. 


Author: 

Roberts,  George  Evans 

Title: 

The  function  of  imports  in 
our  foreign  trade 

Place: 

[New  York] 

Date : 

[1 920] 


COLUMBIA  UNIVERSITY  LIBRARIES 
PRESERVATION  DIVISION 

BIBLIOGRAPHIC  MICROFORM  TARGET 


MASTER  NEQATIVE  « 


Si" 


ORIGINAL  MATERIAL  AS  FILMED  -  EXISTMQ  BIBLIOGRAPHIC  RECORD 


Boberts,  George  Evan,  1857- 

...  The  function  of  imports  in  our  foreign  trade,/b5| 
George  E.  Roberts  ...  [New  York,  The  National  city 
bank  of  New  York,  1920]  ^  . 

il4i  p.  ,23*"^   (Fordgn;  commerce  series,  no.  2) 

"An- address  delivered  before  the  seventh  National  foreign  trade  con-  ?3 
vention,  San  Ffandsco,  California,  May  12,  1920." 


1.  U.  S.— Comm.     i.  Title. 


Ubraiy  of  Congress  i 


RESTRICTIONS  ON  USE: 


HLM  SIZE:  _25Ma 


TECHNICAL  MICROFORM  DATA 


REDUCTION  RATIO: 


IMAGE  PLACEMENT 


:  lA^^ 


IB  ilB 


DATE  RLMED:  hAU-^ 


INITIALS 


TRACKING  «  : 


RLMED  BY  PRESERVATION  RESOURCES,  BETHLEHEM,  PA. 


in 


o 

li 

^£ 

is 

M  CO 
QOM 

o 


3 
3 


> 

CD 
01  O 

o  m 
Q.~n 


X 


X 
M 


4^ 


> 


Ul 

o 


> 

Ul 


& 


8 


O 


1^  mm 


1.0  mm 


1.5  mm 


2.0  mm 


ABCOCFGHIJKLMNOPQRSTUVWXYZ 
l»c<tt»plmmmi|rrtMMwii>il23«S67»90 


ABCDEFGHIJKLMNOPQRSTUVWXYZ 
abcdefghijklmnopqrstuvwxyz 1234567890 


ABCDEFGHIJKLMNOPQRSTUVWXYZ 
abcdefghiiki  mnopqrstu  vwxyz 


ABCDEFGHIJKLMNOPQRSTUVWXYZ 
abcdefghijklmnopqrstuvwxyz 
2.5  mm  1234567890 


^^^^^ 


as 
"0  m  -o 

2  x' 

X  TJ  ^ 

O  (/)  5 


cn 

3 
3 


ro 
o 

3 
3 


h 

fi 
li 

IM  (/J 

si 

r 


2.fT| 

fi 


00 


8 


4 


/*4V 


Foreign  Commerce  Series 

NUMBER  TWO 


The  Function  of  Imports  in 
Our  Foreign  Trade 


fly 


V 


The  National  City  Bank  of  New  York 


LIBRARY 


School  of  Business 


Foreign  Commerce  Series 

Number  Ttoo 

The  Function  of  Imports  in 
Our  Foreign  Trade 

Br 

GEORGE  E.  ROBERTS 
Vice-President 
The  Nationid  Cify  Bank  if  New  Yerk 

LIBRARY 
SCHOOL  OF  BUSINESS 


An  addnm  idmted  b^we  Ae 
Seventh  Naiional  Foreign  Trade  Comention 

San  FroneUeo,  California 
May  12,  1920 


3  HO 


THE  FUNCTION  OF  IMPORTS 
IN  OUR  FOREIGN  TRADE 


THE  great  War  has  brought  about  certain  changes  of  a  funda- 
mental character  affecting  trade  and  financial  relations  be- 
tween the  United  States  and  other  countries,  and  those  changes 
must  be  fully  comprehended  if  we  are  to  plan  intelligently  far  the 
future.  Our  trade  relatk»Ei8  in  the  past  have  devdoped  in  haraMmy 
with  our  past  position  as  a  borrowing  naticm,  a  d^tcnr  naticm  cm 
account  of  foreign  investments.  We  were  a  new  country  of  vast 
undeveloped  resources,  affording  opportunity  for  cheap  production 
of  foodstuffs  and  raw  materials,  of  which  the  world,  and  particularly 
the  countries  of  Europe,  were  in  need.  Our  population  grew  rapidly 
by  immigration  from  Europe,  and,  in  the  earlier  years  of  our  develop- 
ment, £rom  the  countries  of  Eurqpe  most  advanced  in  the  arts  of 
industry  and  in  accumulations  of  capital.  It  was  natural  undor 
these  drcumstances  and  with  the  development  of  steam  power  in 
transportation,  that  capital  should  flow  freely  from  Europe  to 
this  country  for  investment,  and  the  earnings  of  this  capital,  un- 
less reinvested  here,  were  a  charge  against  us  in  the  international 
exchanges. 


Ecftiilibriiim  of  Exdhange 
Tms  situation  existed  not  only  in  the  early  years  of  devdopment. 


«     1 J 

ities  were  largely  increased  hi  the  period  of  expansion  which  began 
about  1900.  During  the  ten  years  next  precedmg  the  outbreak  of 
the  War  the  average  annual  balance  of  trade  in  favor  of  the  United 
States  on  merchandise  account  was  approximately  $500,000,000,  and 
it  was  practically  offset  by  the  balance  in  what  has  been  called  the 
invisible  accountr— in  other  words,  by  interest  and  dividend  pay- 
ments upcm  Amancan  securities  hdd  abroad,  dbarges  of  fordgi 
shifting  against  our  commerce,  earnings  of  foreign  insurance  cchu- 
panies  in  1^  country,  conmdssions  of  foreign  bankers,  expenditures 
of  American  tourists  abroad,  remittances  of  our  foreign-bom  residents 
to  relatives  in  the  old  countries,  etc. 

It  Is  evident  that  the  War  has  disturbed  this  old  state  of  equi- 
librium. We  have  bought  back  most  of  the  American  securities  which 
were  held  abroad  and  the  interest  and  dividends  upon  them  here- 


THE     FUNCTION     OF  IMPORTS 


aHer  wiU  remain  at  home.  We  are  bmlding  a  great  fleet  of  merchant 
ships  with  the  intentioa  of  carrying  a  larger  portion  of  the  over-seas 
trade,  and  we  have  become  creditors  to  Europe  in  a  very  large 
amount.  Including  the  loans  of  ^  United  States  Government  to 
the  governments  associated  with  H  In  the  War,  the  bdanoe  In  our 
favor  upon  interest  account  is  doubtless  omfflderably  above  $500,- 
000,000  per  annum. 

Transfer  of  ^^Invisihle''  Account  Balance 

What  effect  wiU  this  shift  of  the  balance  d  payments  m  the 
"invisible"  account  have  upon  our  foreign  trade?  How  many  people 
have  realized  that  there  is  a  relationship  between  the  two  classes  of 
payments,  or  that  they  have  influence  upon  each  other?  And  yet  a 
moment's  lefleclion  will  show  that  the  payments  and  receipts  of  a 
country  in  Inteniational  relations  must  balance  in  the  aggregate. 
Nothing  is  given  away.  Eagw  as  everybody  is  tor  trade,  nobody 
wants  to  sell  unless  he  recwves  in  some  f«m  what  he  considen  an 
equivalent;  and  a  country  which  is  a  debtor  on  caintal  account 
must  not  only  pay  for  all  the  goods  it  imports  but  keep  up  its  intorest 
payments  besides.  It  follows,  therefore,  that  a  borrowing  country 
nonnafly  exports  more  commodities  than  it  imports  and  that  a  lend- 
ing country  normally  mqports  more  than  it  exports.  "NormaUy" 
m  this  case  means  "in  the  long  run"  and  without  taking  account  of 
new  lending  operations. 

In  the  past  it  was  necessary  for  the  United  States  to  have  a 
trade  balance  erf  approximatdy  1500,000,000  per  year  in  order  to 
pay  the  charges  accruing  against  tt  abroad;  but  m  the  future  it  will 
be  necessary  for  the  United  States  to  have  a  balance  <rf  perhaps  an 
equal  amount  in  its  favor  in  order  to  collect  the  interest  running  in 
its  favor  and  against  other  countries. 

BAtm  Countvy  Most  Have  FvfonhU  Trade  Balance 

This  may  sound  to  some  people  Uke  a  startUng  and  even  alarm- 
ing change.  Our  own  history  has  accustomed  us  to  thinking  that  we 
must  have  a  trade  balance  in  our  favor  in  order  to  be  in  a  sound 
and  prosperous  conditicm,  but  that  was  true  because  we  were  in  a 
debtor  portion.  We  had  to  have  an  excess  of  eiqporte  over  imports 
sufficient  to  meet  the  other  diarges  In  the  account  against  us,  or  we 


had  to  settle  the  difference  in  gold  or  securities,  and  if  gold  was  with- 
drawn from  our  bank  reserves  for  the  purpose  it  meant  a  contraction 
of  credit,  a  check  to  enterprise  and  probably  a  period  of  falling 
prices  and  business  depression.  Our  beUef  in  the  necessity  for  a 
favorable  trade  balance  has  been  based  upon  our  own  experience 
that  good  times  came  with  the  trade  balance  and  that  bed  times 
came  when  the  balance  turned  agaimt  us,  but  we  must  now  ccm- 
sider  that  our  position  is  reversed,  that  our  own  requirements  are 
reversed,  and  that  the  countries  which  are  now  debtor  to  us  need 
to  have  the  favorable  trade  balance  for  the  same  reason  that  we 
formerly  required  it.  It  is  in  the  interest  of  both  sides  that  the 
debtor  country  shall  have  the  favorable  trade  balance,  because  that 
is  the  only  ccmdition  under  which  it  can  meet  its  didigations. 

Europe's  Debt  to  Us  Cannot  Be  Settled  in  Gold 

As  BETWEEN  individuals  there  are  only  three  ways  in  which  a 
settlement  can  be  made.  You  pay  in  cash,  or  you  pay  in  trade,  or 
you  give  your  note,  which  of  course  is  not  a  fined  settlement,  but  a 
postponement  to  a  more  convenient  time.  As  between  nations  the 
situation  is  just  the  same.  You  pay  in  gold,  which  is  the  cash  of 
international  transactimis,  or  you  pay  in  trade,  you  pay  in  securi- 
ties which  are  evidence  erf  continuing  obligations.  Now,  we  know 
Uiat  toi&ga  countries  will  not  be  able  to  pay  us  in  gold,  for  the  total 
production  of  gold  in  the  world  outside  of  the  United  States  is  less 
than  $400,000,000  per  year,  and  even  if  the  debtor  countries  were 
able  to  send  us  considerable  sums  in  gold,  the  effect  would  be  to 
cause  a  further  inflation  of  prices  in  this  country,  which  would  be 
to  our  disadvantage  in  foreign  trade  and  an  injury  to  us  at  home. 
It  would  be  idle  and  unintdligent  for  us  to  meet  in  ccmv^ticms  and 
I^an  to  build  up  a  great  eaqport  trade  expettixig  to  collect  tJie  pro- 
ceeds in  gold. 

We  have  done  too  much  of  this  in  the  past.  We  have  given  all 
our  thought  to  exports,  to  sdling  our  products  in  other  countries, 
without  considering  how  the  foreign  customers  we  are  seeking  will 
be  able  to  make  payments  for  their  purchases.  That  problem  is 
just  as  much  ours  as  theirs,  for  they  cannot  solve  it  without  our 
help,  and  they  cannot  buy  unless  they  are  able  to  render  reciprocal 
services  to  us. 


THE     FUNCTION     OF  IMPORTS 


How  a  Foreign  PiurdbaMr  Makes  Wm  Pteyment 

In  normal  times  an  exporter  gives  little  attention  to  how  a  foreign 
puicham  will  make  payment.  He  turns  his  foreign  drafts  over  to 
bis  bankw  and  gels  credit  for  them,  with  scarcely  a  thought  as  to 
the  means  by  which  these  drafts  are  settled.  He  doesn't  leaBie 
that  they  are  paid  with  the  proceeds  of  foragn  products  coming  mto 
the  country.  The  services  of  the  banker  relieve  him  of  the  necessity 
of  personally  arrangirg  the  barter  of  his  goods  in  foreign  markets, 
but  fundamentaUy  trade  is  barter  and  it  must  be  thought  of  as  such 
to  understand  it. 

Nothing  but  the  disorganized  state  of  industry  m  Europe  and  the 
l^essing  necessities  of  the  world  enable  our  exports  to  continue  as 
at  present.  They  buy  of  us  because  there  is  no  alternative.  But  the 
woM  will  not  remain  forever  in  its  present  state.  Gradually  order 
will  be  restored,  producticm  will  be  resumed  and  business  will  get 
back  to  a  competitiye  basis.  We  must  consider  what  our  position 
will  be  when  that  time  comes. 

*«FaTOff«Ue  Ezdiaiige*'  Really  Unfavorable  to  Our  Exporters 

Wb  have  been  accustomed  to  say  that  the  exchanges  are  in  our 
favor  when  the  dcdlar  rates  above  the  other  currencies.  They  are 
in  our  favor  in  the  sense  that  for  the  moment  we  are  selling  more 
than  we  are  buying,  and  that  the  doUar  holds  the  commanding 
position  in  the  markets  d  the  world.  They  are  in  our  favor  for 
buying  purposes;  they  are  m  our  fav»  f<w  imputing  purposes,  but 
they  are  not  in  our  favor  for  selling  purposes.  Ddlar  drafts  at  a 
premium  mean  that  American  goods  cost  more  to  foreign  customers; 
a  premium  upon  doUar  exchange  is  an  obstacle  to  our  export  trade 
which  we  will  be  compelled  to  reckon  with. 

The  case  of  our  neighbor,  Canada,  affords  an  opportunity  to 
study  the  effects  of  an  unbalanced  trade,  and  to  observe  the  in- 
fluences which  naturally  come  into  play  to  restore  the  balance.  The 
balance  m  favw  <rf  the  United  States  in  trade  with  Canada  in  three 
years  has  averaged  over  1300,000,000  per  year.  If  the  total  of  all 
payments  running  each  way  were  the  same,  the  drafte  drawn  m 
each  country  on  the  other  would  meet  hi  the  dearing  hcHises  and 
offset  each  other,  and  exchange  would  be  at  par.  But  with  these 


IN     OUR     FOREIGN  TRADE 


heavy  balances  running  against  Canada  there  is  need  for  Canadians 
to  make  greater  payments  in  the  United  States  than  the  credits 
created  by  thdr  exp(»rts  wiH  cover. 

Canada  has  balances  in  her  favor  in  trade  with  other  countries, 
but  those  countries  also  are  in  debt  to  the  United  States,  so  that 
those  balances  cannot  be  used  (at  settlwent  here.  Under  ordinary 
omditions,  the  Canadian  banks  would  ship  gold,  but  the  total 
gdd  reserves  of  Canada  are  not  much  above  $200,000,000,  and 
the  reserves  might  be  drained  entirely  away. 

Besalt  of  Canada's  Demand  Upmi  Us 

The  situation  is  that  there  is  a  greater  demand  in  Canada  for 
means  of  making  settlements  in  the  United  States  than  can  be 
readily  satisfied,  with  the  result  that  exchange  has  beoi  forced  to  a 
premium.  In  the  fall  of  1918  the  premium  was  about  2  p^  cent, 
in  the  fli»ing  of  1919  it  was  about  3  per  cent,  in  the  early  fall  <^ 
1919  it  was  4  per  cent,  in  November  it  was  5  per  cent,  in  January, 
1920,  it  was  10  per  cent  and  in  February  it  was  15  per  cent.  This 
premium  is  not  fixed  in  the  United  States;  it  results  from  competi- 
tion in  Canada  for  the  means  of  payment  in  the  United  States. 
It  is  not  a  reflection  upon  the  credit  of  Canadian  traders;  the  Cana- 
dian purchaser  may  have  amgle  funds  with  his  own  bankers  to 
make  the  paymoats.  It  is  not  a  reflection  upon  Canadian  bankm 
or  Canadian  money.  Canadian  Government  credit  is  not  invc^ed 
at  fffi.  It  is  not  a  situation  caused  by  bankers  or  that  can  be  remedied 
by  bankers.  The  situation  arises  from  a  state  of  one-sided  trade,  and 
from  the  difficulty  under  such  conditions  of  making  payments  in 
another  country  and  a  different  currency. 

The  premium  is  an  open  offer  to  anyone  who  will  come  forward 
and  provide  means  of  payment  in  the  United  States.  It  amounts  to 
an  inducement  in  the  nature  of  a  bounty  for  Canadians  to  export 
products  to  the  United  States  and  sell  the  exchange  thus  created. 
The  Canadian  paper  and  pulp  manufacturers  are  makii^  a  hand- 
scmie  additional  fwdit  on  their  sales  in  the  United  States  by  selling 
their  American  drafts  at  a  premium. 

And  while  it  oocourages  eiqports  from  Canada  to  this  country  it 
burdens  and  discourages  eqpcnrts  from  this  country  to  Canada.  The 


THE     FUNCTION     OF  IMPORTS 


Canadian  purchaser  of  Amerkan  goods  must  pay  the  price  in  this 
country  and  then  pay  a  premium  of  10  or  15  per  cent  to  dytain  the 

means  of  payment. 

Importance  of  Canada  as  Our  Customer 

Canada,  among  all  countries,  next  to  Great  Britain,  is  the  best 
customer  for  American  goods,  but  the  Canadians  cannot  buy  with- 
out the  means  of  paying.  Our  trade  is  being  curtailed,  partly  by  the 
added  cost  resulting  horn  the  exchange  rates  and  partly  by  a  dehb- 
erate  policy.  There  is  public  agitation  m  Canada  agamst  any  pur- 
chases in  the  United  States  except  of  goods  that  are  mdispODsaUe, 
and  talk  of  an  embargo. 

Our  eiporters  are  dealing  with  the  situation  as  best  they  can. 
Some  of  them  are  dividmg  the  cost  of  exchange  with  thdr  Canadian 
customers,  some  of  them  are  accepting  pay  m  Canadian  funds,  and 
converting  those  funds  into  Canadian  securities  or  other  permanent 
investments  on  that  side  of  the  Hne,  which  is  all  right  if  they  can 
spare  the  capital  from  their  busmess.  Others  have  abandoned  the 
Canadian  trade.  All  of  the  fcxregmng  expedients  are  of  only  tem- 
porary vahie.  If  the  balances  omtinue  to  pile  up,  the  exchange 
situation  mevitably  will  grow  wme.  There  is  no  stopping  pdnt 
until  the  balances  cease  to  accumulate. 

I  use  the  case  <^  Canada  as  an  illustraticm  because  the  situation 
there  is  clearly  the  result  of  an  unbalanced  trade.  Exchange  rates 
with  some  of  the  countries  of  Europe  are  affected  by  inflated  and 

depreciated  currencies,  but  while  there  is  doubtless  a  degree  <rf  m- 
flation  in  Canada  we  cannot  say  there  is  any  more  than  in  the  United 
States.  The  situation  as  to  the  two  countries  therefore  affords  a 
clear  demonstration  of  the  effect  of  a  one-sided  trade  upon  exchange 
rates  and  oi  the  vital  part  which  exchange  rates  play  m  foreign  trade. 

Factors  That  Will  Bring  Our  Foreign  Trade  into  Balance 

The  plain  truth  is  that  if  m  our  relations  with  the  rest  of  the 
world  the  balance  of  payments  runs  omtinually  in  our  favor,  both  on 
trade  account  and  on  interest  account,  exchange  rates  will  rise 

against  us  as  the  balances  increase,  discouraging  exports  and  enoour- 
agmg  imports,  until  the  t^ade  is  brought  substantially  mto  balance. 


IN     OUR     FOREIGN  TRADE 


Every  situation  like  this  brings  a  lot  of  people  to  the  front  with 
remedies.  There  are  proposals  Ux  an  international  currency,  an 
mtemational  gdd  reserve,  an  international  clearing  house,  an  inter- 
national bank  and  far  a  Government  foreign  bank  on  our  own 
account.  All  of  these  proposals  overlook  the  fundamental  truth 
that  trade  is  essentially  barter  and  in  the  long  run  must  settle  itself. 
Grold  is  a  convenient  medium  for  settUng  balances  which  run  one 
way  for  a  few  months  and  the  other  way  for  a  few  months,  but 
mtemational  trade  is  on  such  a  great  scale  that  the  amount  of  gold 
available  for  payments  is  small  in  o(»nparisoii.  Thare  isn't  gold 
enough  in  all  Europe  to  pay  its  adverse  trade  balance  with  1^ 
United  States  last  year.  Moreover,  no  country  will  allow  its  banking 
reserves  to  be  disturbed  unduly.  We  ourselves  would  be  as  quick  as 
any  to  establish  an  embargo  if  our  gold  reserves  were  seriously 
threatened.  The  plain  fact  is  that  in  the  nature  of  things  trade  must 
be  kept  on  the  basb  of  barter;  it  must  be  brought  into  balance, 
and  high  exchange  rates  are  the  natural  and  only  effective  means 
a{  bringing  it  into  balance. 

A  New  Economic  Situation 

We  are  confronted  then  with  a  new  economic  situation,  which  we 
ore  bound  to  recognize.  We  must  give  attention  as  good  mercheuits 
to  the  conditions  which  con&ont  our  would-be  customers  and  the 
means  which  they  possess  for  making  paym^ts.  The  purchafflng 
power  of  every  country  is  in  its  own  powars  of  productiim,  and 
unless  it  can  use  those  powers  and  market  the  products  of  its  in- 
dustries, it  will  not  be  in  position  to  pay  or  buy.  The  whole  scheme 
for  which  this  Association  is  organized,  the  promotion  of  foreign 
trade,  might  as  well  be  abandoned,  unless  we  are  ready  to  consider 
the  development  of  real  trade,  the  exchange  of  our  products  for  the 
products  of  other  peoples. 

It  is  a  mistake  for  us  to  advocate  foreign  trade,  as  is  sometimes 
done,  on  the  ground  that  we  have  so  greatly  increased  our  general 
productive  capacity  that  we  cannot  consume  the  output  of  our 
industries.  That  is  not  true  in  a  general  s^ise,  including  all  the  in- 
dustries. The  people  oi  the  United  States  oouM  easily  ccmsume  a 
volume  <^  production  equivalent  to  twice  the  present  industrial 
capacity  of  the  country,  provicted  i»oduction  was  adjusted  and 


THE     FUNCTION     OF  IMPORTS 


balanced  to  their  wants.  Everybody  would  like  to  have  twice  as 
much  house-foom,  an  autcmiobile,  or  two  automobiles,  and  other 
thmgs  In  keeping.  There  is  no  limit  npcta  oar  ability  to  consume; 
the  limit  is  on  our  ability  to  {HToduce.  But  in  some  lines  <^  i»oduction 

we  have  developed  our  capacity  beyond  the  demands  of  our  people 
for  those  products,  and  we  want  to  exchange  such  products  for  other 
things  of  which  we  are  in  need.  We  cannot  dispose  of  them,  or  use 
that  industrial  capacity,  except  on  a  basis  of  exchange.  That  is  the 
real  situatioii  as  to  foreign  trade. 

Proposal  for  Greater  Liberality  Toward  ImporU 

Now  WHAT  are  we  going  to  do  about  it?  And,  particularly,  what 

will  be  the  attitude  of  associatwns  like  this,  organised  for  the  pro- 
motion of  foreign  trade?  The  subject  undoubtedly  presents  some 
difficulties.  A  proposal  to  adopt  a  policy  of  greater  liberality  toward 
imports  than  this  country  has  maintamed  habitually  in  the  past 
will  run  counter  to  the  l(Mig-established  views  of  many  people,  arouse 
apprehensions  and  periiaps  create  scmie  dissension  even  within  the 
Association  itself,  but  the  question  must  be  dealt  with,  one  way  or 
the  other.  An  argument  can  be  made  for  a  policy  of  exclnsion  and 
isolation,  keeping  out  all  foreign  products  which  are  oompetitiye 
in  any  degree  with  our  own  and  restricting  our  exports  correspond- 
ingly; and  another  argument  may  be  made  in  favor  of  a  more  Uberal 
policy  which  will  afford  an  importunity  for  a  larger  development  of 
trade  on  mutually  advantageous  lines;  but  no  well-supported  argu- 
ment can  be  made  in  favor  of  trying  to  expand  our  exports  without 
increasing  our  impOTts.  That  is  a  waste  <rf  energy;  it  mMy  canpot 
be  done.  We  must  choose  a  consistent  course. 

America's  Opportunity  in  World  Markets 

In  my  opinion  it  is  inconceivable  that  the  people  of  the  United 
States  will  adopt  permanently  a  pohcy  which  lays  all  emphasis  upon 
being  self-contained  and  whidb  would  restrict  and  handicap  those  in- 
dustries which  are  able  to  compete  in  all  markets,  for  the  sake  of  other 
industries  which  do  not  have  like  possibilities  of  growth.  The  largest 
posdbifities  for  the  country  fie  in  the  industries  iduch  can  make  thd^ 
way  in  world  markets.  The  genius  of  our  people  will  not  be  satisfied 
without  a  chance  in  the  markets  of  the  world.  The  facilities  for  travel 


IN     OUR     FOREIGN  TRADE 


and  transportation  are  such  that  it  is  inevitable  that  trade  shall 
reach  across  national  boundaries,  and  it  is  favorable  to  national 
efficiency  and  deivelopment  and  in  the  c(xnmon  interest  industrial 
progress  that  this  shall  be  the  case.  In  saying  tins,  however,  I  am 
not  making  a  declaration  in  favor  of  any  radical  change  from  the 
pohcy  which  is  embodied  in  our  laws  today.  Nothing  should  be  done 
that  will  change  materially  the  position  of  the  great  essential  indus- 
tries of  the  country  in  which  thousands  of  people  are  employed  and 
millions  of  ciqpital  are  invested.  It  is  not  desirable  to  unsettie  these 
industries,  and  to  a  great  extmt  they  are  quite  secure  in  thdr  own 
strength. 

Industry  is  undergoing  constant  changes,  the  volume  of  trade  is 
rapidly  increasing,  and  if  we  are  guided  in  the  future  by  recognition 
of  the  reciprocal  nature  of  all  permanent  l^de  it  is  not  fikdy  that 
tariff  changes  materially  affecting  existing  industries  will  need  to 
be  made. 

A  Creditor  to  Europe — ^a  Debtor  to  South  America 

We  are  in  the  debtor  position  on  trade  account  toward  South 
America  and  Asia,  and  in  a  creditor  position  toward  Europe,  Africa 
and  the  other  countries  of  North  America.  Conditions  are  unfav- 
orable to  an  expansion  of  our  exports  to  Europe  and  Canada,  but 
favorable  to  such  expansion  in  South  American  and  Asia,  providing 
we  continue  to  receive  the  products  of  the  latter  upon  preset  terms. 
These  products  are  mainly  foodstuffs  and  raw  materials  whkh  are 
required  in  our  industries  and  they  come  into  competition  with  our 
own  products  only  in  the  sense  that  the  domestic  supply  is  insuffi- 
cient to  meet  our  wants.  Wool  and  hides  are  examples  of  these 
products.  There  is  no  reason  to  beUeve  that  the  domestic  supply 
of  these  commodities  can  be  made  equal  to  our  needs,  and  that  bdng 
true  it  follows  that  any  charges  whidi  may  be  laid  upon  our  importa- 
tkm  will  raise  the  levd  €i  costs  for  our  mtm  consumpticm,  and 
tend  to  put  the  industries  dep^dent  upon  these  materials  at  a 
disadvantage  in  competition  with  foreign  rivals. 

Receiving  Raw  Materials  on  Free  Basis 

The  general  level  of  prices  for  foodstuffs  and  raw  materials  has 
risen  so  much  all  over  the  world  that  there  seems  to  be  no  occasion 


THE    FUNCTION     OF  IMPORTS 


for  ralsmg  them  higher  in  this  country  by  artificial  means.  The 
groat  rise  of  fanning  land  values  in  this  country  in  the  last  twenty 
years  Indicates  that  the  prices  of  fann  {Kroducts  have  been  gen- 
erally on  a  rOTunerative  basis.  Although  they  may  dedine  to 
some  extent,  it  is  generally  agreed  that  they  will  not  fefl  to  pre- 
war prices. 

We  are  now  receiving  foodsti^s  and  raw  materials,  which  are  the 

principal  products  of  South  America  and  Aria,  practically  on  a  firee 
basis,  and  it  is  in  the  interest  of  our  export  trade  to  those  quarters 
that  this  status  should  not  be  altered.  These  are  hopeful  fields 
for  an  expansion  of  our  exports,  but  they  will  not  be  if  we 
set  up  obstructions  to  the  natural  flow  of  their  products  to  our 
markets. 

Any  duties  laid  upon  this  class  of  imports  will  come  back  in  full 
measure  upon  the  entire  population  and  be  a  handicap  to  the  ex- 
porting industries  which  use  them. 

Maiket        for  Foraigii  Invcatmciita 

In  conclusion,  it  should  be  said  that  the  readjustments  incidental 
to  our  transition  firom  the  conditions  of  a  debtor  country  to  those  of 
a  creditor  country  may  be  greatly  eased  and  facilitated  by  the 
development  m  the  United  States  of  a  market  for  tomga  invest- 
ments.  It  is  understood  that  the  interest  runnmg  on  the  outstandmg 
obligations  of  foreign  governments  to  the  United  States  Government 
will  be  funded  for  several  years,  and  therefore  will  not  in  the  mean- 
time aflfect  the  exchange  situation.  If  our  people  will  take  a  lesson 
fit«n  the  history  of  the  upbuikiing  of  the  great  fc^gn  trade  of 
Great  Britain  and  Germany,  they  will  take  advantage  of  low  ex- 
change rates  to  secure  permanent  investmoits  which  will  be  h^pM 
to  trade  in  the  future.  Both  of  these  countries  have  played  a  large- 
part  not  only  in  the  expansion  of  international  commerce  but  in 
the  increase  of  world  production,  by  supplying  capital  in  the  form 
<rf  industrial  equipment  for  the  countries  of  undeveloped  natural 
resources.  They  kept  exchange  rates  from  rising  against  them 
by  admitting  freely  the  products  of  the  countries  where  they 
were  building  up  their  expwts  and  by  re-investliig  in  part  the  in- 
come derived  from  those  countries  for  further  expansioii  of  tlwtf 
interests 


IN    OUR    FOREIGN  TRADE 


National  Prosperity  in  Balanced  Trade 

These  are  the  polides  whidi  have  Ivought  success  to  the  countries 
that  have  preceded  us  in  the  devek^»n^t  oi  worid  trade.  They  will 

be  practising  the  same  methods  in  the  future,  studying  the  needs 
and  interests  of  the  people  whose  trade  they  are  seeking.  We  can 
have  success  upon  the  same  terms,  but  upon  no  other.  In  the  long 
run  and  taking  the  large  view,  the  greatest  prosperity  for  every 
country  is  to  be  found  in  such  a  balanced  and  mutually-supporting 
state  intematioiial  trade  as  stimulates  indi^try  and  i^osperity 
cverywhope. 

This  is  a  fundamental  proposition  which  in  its  broad  significance 
cannot  be  controverted,  but  in  the  eagerness  of  individuals  to  sell 
and  amid  the  aiq[n^diensions  which  arise  from  vigorous  competition, 
the  people  of  every  country  are  i»one  to  overestimate  the  dangers 
which  threaten  them  from  the  competition  of  oth^  countries.  It  is 
possible  for  one  country,  by  reason  of  natural  advantages  or  by 
painstaking  efforts,  to  obtain  a  dominant  position  in  a  single  in- 
dustry, but  the  same  reasons  which  prevent  a  great  one-sided  trade  in 
favor  of  the  United  States  likewise  forbid  such  a  trade  in  favor  of  any 
other  country.  It  is  impossible  for  any  country  to  mcnM^mlize  the 
trade  of  the  world.  Great  foitain  always  ha&  imported  mare  com- 
modities  than  she  expcnrted.  Germany  was  increasing  her  foF&ga 
trade  rapidly,  but  for  the  five  years  preceding  1914  her  imports 
exceeded  her  exports. 

Produetton  li&e  Measure  of  Buying  Power 

The  people  of  no  country  can  do  more  than  work  all  the  time, 
and  however  efficient  they  may  be  in  production  they  will  not  be 
able  on  the  whole  to  do  any  more  than  supply  their  own  wants, 
because  their  wants  will  develop  as  fast  as  their  production,  which 
is  the  measure  of  their  buying  pow».  It  does  not  follow  that  they 
win  supply  all  thfflr  own  wants  directly ;  they  never  do  that ;  a  country 
naturally  sends  abroad  a  part  of  its  producticm  in  exchange  for  the 
production  of  other  countries,  but  the  population  of  every  country 
will  gladly  consume  the  equivalent  of  its  own  production,  and  in 
the  long  run  is  bound  to  do  so. 

I  have  had  finends  express  great  ccmoem  to  me  about  the  future 
competition  of  different  countries;  scnnetimes  it  has  been  Great 


\ 


THE     FUNCTION     OF  IMPORTS  

Britain,  wnnetimes  it  has  been  Garmany;  sometimes  it  has  been 
Japan.  Any  of  these  countries  may  specialize  in  certain  industries 
and  become  fonnidaUa  oompelHon  in  them,  but  nothing  is  more 
certain  than  that  noi»  of  these  countries  in  any  goieral  sense  can 

crowd  other  countries  out  of  industry.  None  of  th«n  in  the  long  run 
will  sell  any  more  than  it  buys  or  make  in  the  aggregate  any  more 
commodities  than  it  consumes.  None  of  them  will  make  goods  for 
other  countries  without  wanting  something  in  return. 

Bogey  td  **Cheap  Japanese  LaW 

Japan  is  sometimes  mentioned  as  a  threatening  competitor  be- 
cause of  the  low  wage  rates  prevailing  there,  but  wages  are  low  in 
Japan  because  the  madune  equii«ient  of  the  country  has  been  small 
and  the  productive  capacity  of  the  country  has  been  small.  Japan 
can  hardly  produce  enough  to  satisfy  the  growing  wants  oi  her  own 
people.  Their  consumption  and  their  wants  will  keep  pace  with 
any  increase  in  productive  capacity  that  they  can  accomplish. 
Their  imports  grow  as  fast  as  their  exports,  and  so  it  is  everywhere. 

One  of  the  grievances  alleged  against  the  labor  organizations  is 
that  they  sometimes  limit  the  output,  acting  upon  the  theory  that 
there  is  only  a  limited  amount  of  work  to  be  done,  and  that  it  is  to 
then*  interest  to  make  it  go  as  far  and  pay  as  much  in  wages  as  pos- 
sil^.  Every  such  conception  of  industry  and  business  is  funda- 
mentally  wrong.  There  is  no  Umit  to  the  amount  of  w<Nrk  to  be  done 
or  the  amount  of  busine^  to  be  had,  because  there  is  no  limit  to 
the  amount  of  wealth  that  may  be  mated  from  the  natural  resouroes 
or  to  the  consumptive  demands  of  the  world's  popidaticm. 


3 


BobertA 


Jtootion 

APR 


% 


/5<r- 


NEH 


1^ 


a,. 


•  -Jn  tads  •  <«  \% 


»r! ; ,  'S.*-  •  -»'•     4598  -s 


i1  "Mil 

•iilll  11 


